All You Need To Know About Dental Practice Financing

Published January 27, 2018 by Sarah Pritzker

Dental Practice Financing

If you're looking for a loan for a dental clinic, rest assured that you're an attractive prospect for lenders. Dentists are considered a low-risk business so you shouldn't find it too hard to get the professional practice loans you need. The best terms are offered to dentists with a few years of experience behind them and high personal credit scores.

Acquisition dental practice loans are intended to help you buy an existing dental practice. Many dentists think that it's easier to get a practice loan to buy an existing dental practice than for startup dental funding, but that's actually a myth. Lenders weigh every application for dental practice finance on its own merits. Sometimes, taking over an existing practice will come out on top, because the business is already established. On the other hand, when you acquire a dental practice you also run the risk of acquiring outdated technology and depreciated or worse yet, obsolescent equipment. You might have to deal with firing and/or hiring new staff if many employees leave when the practice changes hands, which would leave you with a similar level of initial outlay to starting up a new dental practice from scratch.

Dental startup loans, as the name suggests, serve to cover the cost of opening an entirely new dental practice. Unlike with acquisition loans, a dental startup practice loan is far more focused on your personal credit score and years of experience as a dentist, since there's no existing dental practice in the picture. This can have its advantages since it means that you can't be undermined by the inefficiencies of the practice you're purchasing.

Where to Get Your Dental Practice Loans

Whether you need an acquisition loan or a startup dental practice loan, you have a few options for getting the funds you need.

Bank Loans

The first and most obvious choice is to approach your local bank. A bank loan for dental clinics tends to have lower interest rates and longer terms than other lenders. Bank loans are also usually fixed rate, which means you can plan repayments into your budget. However, banks are also known for taking a long time to process your loan application. You can expect it to take at least 2-3 weeks for your loan to be approved. You'll also need to spend a lot of time gathering documents and filling out paperwork, and need a personal credit score of at least 725.

  • Average APR 5-10%
  • Loan process: 2-4 weeks
  • Minimum credit score: 725
  • Term: 1-25 years
Dental Lenders

Dedicated dental practice lenders that specialize in professional practice loans can be a better choice. They are familiar with the specifics of dental practices and understand your need for working capital and dental equipment financing. Some dental lenders will advance you 100% of the purchase amount without requiring any down payment. You're likely to get approval for your practice finance faster and for a higher amount with a dental lender.

Alternative Lenders

Online alternative lenders are another option. Many online lending platforms specialize in helping small businesses. Alternative loans for dental practice financing can be approved and have the funding through in just a couple of days, which can make all the difference if you need to move fast on a good opportunity. Alternative lenders can approve those with middle-of-the-road credit to those with bad credit, but the disadvantage is that for those at the upper echelon of the credit spectrum, APRs can be egregious.

  • Average APR: 6-35%
  • Loan process: 2-3 days
  • Minimum credit score: 600
  • Term: 1-5 years
SBA Loans

SBA loans are government-backed loans that are aimed at helping small businesses get off the ground. You can apply for an SBA loan from accredited banks as well as from certain online lenders certified to lend via the SBA platform. In so far as turnaround time is concerned, don't hold your breath. Exercise extreme patience and be prepared to go back and forth to the file cabinet in search of seemingly irrelevant documentation. So then what's good about an SBA dental practice loans? Well, they'll frequently lend the entire acquisition or startup amount without a down payment. So, if preservation of your own capital is paramount, an SBA-backed loan may a good fit. Those with lower credit scores, or those with less tradelines on their credit bureau will have a higher approval rate when compared to a typical bank loan product. Expect a minimum FICO of 600 versus a 725, which is generally the cut-off point for bank approvals.

  • Average APR 6-8%
  • Loan process: 2-4 weeks
  • Minimum credit score: 600
  • Term: 3-25 years
  • Dental Equipment Financing

What is Dental Equipment Financing?

Another important part of financing a dental practice is sorting out your dental equipment finance. Sometimes this will be included as part of a bigger loan agreement that covers startup or acquisition costs and working capital or line of credit funding, but you can also get dental equipment financing as a separate loan.

Again, much like other types of dental loans, medical equipment loans or equipment leasing to dental practices as a whole are easier to be approved for and are obtained at lower rates. Banks and non-bank lenders all take a similar view when it comes to dental practice lending, which is to say there is implicitly less risk when lending to dentists because dentists are doctors - trained, educated and accredited individuals that have an ever-expanding market as populations continue to rise and dental care awareness increases.

Dental equipment financing can either be expressed as a lump sum or as a percentage of the total costs. Some lenders will offer up to $250,000 to cover your dental equipment needs, while others will make an agreement to pay up to 80%, 90%, or sometimes 100% of the equipment costs. While equipment leasing for dentists tends to conform to standard equipment loan structures, some lenders make exceptions and will tailor-fit a program to a dentist's specific cash flow need. For example, if new dental equipment needs to be custom-built and manufactured, certain lenders will commence the loan, but defer payments up to three to six months. Deferred payment options for dental practice loans aren't the only loan structures offered to draw closer dentists and dental laboratories in search of capital and capital equipment financing. Skip payments, 10% Purchase Upon Termination (PUT) and even Fair Market Value, or True Leases are available.

How to Get Dental Equipment Financing

Dental equipment finance is also available from various sources - your bank, a professional dental lender, or an online lending platform.

APR Terms Approval time
Bank From 4% 1-5 Years On average, 10 business days
Dental lender From 5% 2-6 Years 1 day - 1 week
Online lender 8-60% Term length matches useful life of equipment, generally, 24-60 months (2-5 years) 2 days - 2 weeks

Before agreeing to a dental equipment financing loan, consider the average depreciation of your planned equipment and weigh those costs against the cost of leasing the same items instead. You might find that once you allow for depreciation, you'll be losing more money by paying off an equipment loan than if you lease what you need. Often times, leasing equipment is the rule, not the exception when it comes to financing dental office equipment. In fact, leasing may be the best financial option if preservation of capital is your top priority. Leasing is analogous to a long-term rental. Therefore equipment with rapid obsolescence like copy machines and computers, Point of Sale (POS) terminals, and even dental laboratory equipment like dental lathes, model trimmers and sintering furnaces, perhaps should be leased to avoid paying out full value of the equipment and interest on top, not to mention property tax as well.

Working Capital Loans for Dental Practices

Whether you're expanding your dental practice by acquiring another branch, just starting up a new dental office, or making changes to an existing practice, there are many occasions when you might need a working capital loan for dental clinics. Working capital loans are short-term cash loans with a fast approval process, which generally takes place online, with little or no communication with the lender. Unlike traditional loans, a working capital loan for a dental practice can take less than 48 hours from application to funding. Dentists can use the funds from a working capital business loan for whatever they deem worthwhile: expansion, buying out a partner, direct mail advertising, Google AdWords/Facebook/Instagram marketing, dental supplies, or even a tenant improvements.

Working capital loans can:

  • Have fixed interest rates, generally a factor rate ranging from 1.10-1.50 on the dollar borrowed
  • Be short-term in nature, 2-24 months
  • Come in the form of traditional lump-sum working capital loans or a flexible business line of credit

If you're taking out a dental practice startup loan or dental acquisition loan, it's best to get your working capital loan as part of the overall financing package. This way you'll know where you stand right from the beginning and won't have to spend time waiting for a new loan application to be processed.

APR rates for working capital loans can vary widely, from as little as 10% to as much as 50%. As with other types of loans, working capital loans are generally marketed by alternative online lenders. The rates you'll be offered and the terms available depend more upon how many years you've been in business and your dental practice's average monthly revenue than on your personal credit. Should you find yourself in need of additional capital after funding your working capital loan, consult the original lender and see if they'll offer additional funds. Most alternative lenders have a clause in their contract that states that merchants may not seek additional funding outside of the relationship, therefore should you stack on another loan, caveat emptor.

What You Need in Order to Open a Dental Office

Dental Equipment

Dental offices can't function without a basic set of dental equipment. Before you draw up your dental equipment list you should decide whether to buy new or used dental equipment, or to get your dental equipment from dental leasing companies instead. Many top dental supply companies like Henry Schein or Patterson Dental offer dentists the choice of buying or leasing dental equipment.

Although you could get carried away buying dental equipment, the dental supplies you really need to get started are:

  • Dental chair - as a rule, five operatories is the minimum: three for dentists and two for hygiene
  • Sterilization equipment (autoclave)
  • Vacuum pump and air compressor
  • 4-5 slow and high speed dental handpieces and attachments
  • Overhead positional dental lights
  • X-ray equipment
  • Utility equipment
  • Operatory cabinetry

Depending on what type of dentistry you specialize in, you might need to add more items to the essential dental equipment list.

Equipment Suppliers

When it comes to buying new dental equipment you basically have two options. You can either buy from specialist dental supply retailers, or you can buy grey market (carry no warranty) or no-name equipment. Often you can get the same items from both places.

Some things to consider:

  • Price - some items are worth paying top dollar for the quality and the service, but for others the quality doesn't vary much.
  • Warranty - big ticket items need good coverage for breakdown and damage so that you don't lose money and time repairing or replacing them.
  • Turnaround time - do you need this item urgently and will pay more for a fast delivery, or can it wait a few days?

In general, it's best to order expensive equipment from specialist dentist suppliers such as Henry Schein Dental Supplies, Patterson Dental, or Benco. It's worth building up a relationship with just one supplier and buying through them so that you'll get the customer support, discount, and warranty coverage that you need.

On the other hand, dental supplies that you use up regularly like disposable bibs and sterilization pouches can be bought for much lower prices from marketplaces like Net32 or even eBay and Amazon, where you can compare prices and search for the best deals.

Best POS Systems

A POS system is vital for every small business. A POS system is the next generation cash register, but unlike a cash register it can track customer data, gather sales information, and process payments. If you're selling any dental products then your POS system also helps you keep track of your inventory. Here are some things to look for in the best POS system for dental offices:

  • Ability to accept CHIP credit cards
  • Ability to process online payments
  • Ability to accept NFC mobile payments like Apple Pay
  • Inventory management
  • Customer data analysis tools
  • Appointment and scheduling tools: send text message reminders of upcoming patient visits

When choosing a POS system for your dental practice you should also pay attention to:

  • The level of security built in to protect customer data
  • PCI compliance
  • Monthly processing fees
  • Payment processing costs
  • Ease of use
Best Accounting Software Platforms

Along with other small businesses, your dental practice needs effective accounting software. Your accounting software platform should be able to:

  • Handle payroll
  • Keep track of your inventory
  • Report expenses
  • Follow invoices

Your choice of accounting software will depend on many things, like how many employees you have, whether you accept online payments, and what kind of expenses you need to track. Consider an online resource like Capterra to help compare dental practice software all in an easy to digest format. There you can drill down on each software solution by category like user rating, how many users/seats are needed, whether you need a cloud-based or on-premise solution, and feature sets required.

Some other things to consider before buying accounting software include:

  • How much it costs, both initially and ongoing
  • How easy it is to set up and use
  • How secure it is
  • What integrations are offered (with your bank account, POS system, marketing, etc.)

Start Your Dental Practice Today with Dental Practice Financing

No matter what your dental practice loan needs are, from dental equipment financing to working capital loans, it's all possible once you know what to look for. Now there's nothing holding you back from starting, expanding, or acquiring a successful dental office.

Sarah Pritzker
About Sarah Pritzker
Sarah Pritzker is a professional writer who specializes in financial markets and trends in the U.S. She grew up in Virginia, went to university in Boston, lived in New York City, circumnavigated the globe with stops in San Francisco, Hong Kong, Thailand, Laos, Cambodia, Kenya, Uganda, and Israel, and then eventually settled in Israel, where she currently resides.

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